Drug Approval process and the stock price

Of Milestones, Key dates and stock price changes

As an ardent observer of the stock markets I would like to take a look at the Bio-pharmaceutical sector and particularly some aspects of the drug approval process and any links that may have on a stock price. My objective is to point out several milestones which could be investing opportunities. At this point it’s prudent that I state categorically that the odds of a drug candidate being approved by the FDA are slim at best. This is a long process which can take over 10 years and costs hundreds of thousands of dollars. To put it in perspective Pfizer with Revenue of $52.8B spent $8B in R&D in 2016.

I’ll segue abit and talk about a late 90s show and hopefully I can show why knowing about these milestones and way ahead of time is important for your investing strategies. CBS had a show called Early Edition starring Kyle Chandler as Gary Hobson. Gary would each day get a copy of the Chicago Sun-Times a day before it actually published. With any knowledge therefore gained, Gary could potentially prevent bad things from happening.

Similarly, in drug development, if you know of some impending event you could take action before the headlines hit. What kinds of headlines are these?

Clovis Up Nearly 50% on Solid Data from Ovarian Cancer Study

(Zacks Equity Research 06/20/2017)

Spanish biotech Oryzon slumps as Roche ditches cancer drug

Reuters 07/20/2017

Vertex Pharma shares hit life high as cystic fibrosis data wows

Reuters 07/19/2017.

Drugs go through a life cycle starting from pre-clinical development which involves lab discovery and animal test, clinical trials with human volunteers (phase 1 through phase 3), FDA Approval, product marketing and the eventual retirement into the over the counter category. Any of these stages involve milestones that can be that headline.

To illustrate I’ll look at Xeljanz, the Rheumatoid arthritis drug by Pfizer. You may be familiar with their commercials. There are multiple patents associated with this product including one 6956041. A patent is a major milestone in any product development. In drug development, and depending on the size of a company, a simple headline like “company files for patent” can have an effect of a stock price. This patent was filed on Aug 13, 2003 and granted on Oct 18, 2005, part of the long marathon. It is set to expire on Dec 18, 2020. . After successful clinical trials the FDA approved the drug on Nov 16, 2012 with a market exclusivity period of 5 years ending Nov 6, 2017. All these dates are key milestones

Lots of dates, even more data but once approved the company has to recover all the R&D cost and hopefully make a profit hence all those commercials. I’m old enough to remember days when we used to watch the evening news as a family but I’ll tell you what messed that up. Its not multiple screens and all that (little bit) It’s those commercials. Imagine watching the Evening news hosted by a serious personality and in pops a Viagra commercial. You are sitting next to your mother in-law and in direct eye sight of your father in-law. After 30 seconds of squirming, you inadvertently lock eyes with your father in-law and now you can’t get the image of a 60 some year old guy in the back of an ambulance.

Xeljanz contributed $308M, $523M, and $927M in 2014, 2015, and 2016 respectively. As exclusivity period expires, Pfizer is facing a patent cliff, a phenomenon common in drug companies where that revenue protection by the patent will come to an end and cheaper generics will enter the space.

Managing a product like Xeljanz may not be a problem for Pfizer since it is a big company with lots of cash to buy just about anything, many products and many more under development but it can be a defining moment for other smaller companies. As an investor you have to be aware of the product, product pipeline, revenue and threats including competition.

Below I look at one year events in the life of Puma Biotechnology Inc, and outline a few milestones leading to it July 17 2017 approval of the drug NERLYNX™ (neratinib). Any of these milestone can have an effect on a stock price and the far along a product is, the better the odds for an investor, though there are no guarantees.

July 17, 2017 — FDA approves Puma’s NERLYNX™ (neratinib) for Extended Adjuvant Treatment of HER2-Positive Early Stage Breast Cancer

May 24, 2017 — The FDA has several independent advisory committee whose input is vital but not crucial to the final decision. On this date the Oncologic Drugs Advisory Committee (ODAC) voted 12–4 to approve Neratinib.

April 17, 2017 — FDA Advisory Committee to Review Neratinib for the Extended Adjuvant Treatment of HER2-Positive Early Stage Breast Cancer

April 2, 2017 — Puma Biotechnology Presents Results from the Phase II SUMMIT Trial of PB272 for ERBB2 (HER2) Mutant, HER2 Non-Amplified, Metastatic Cancer at the 2017 AACR Annual Meeting

September 20, 2016 — FDA Acceptance of New Drug Application for PB272 (Neratinib) for Extended Adjuvant Treatment of HER2-Positive Early Stage Breast Cancer

July 21, 2016 — Puma Biotechnology Submits New Drug Application for PB272 (Neratinib) to U.S. FDA for Extended Adjuvant Treatment of HER2-Positive Early Stage Breast Cancer

June 5, 2016 — Puma Biotechnology Presents Positive Phase II Data at the 2016 ASCO Annual Meeting

Investors have to live with ups and downs in clinical development with great headlines and crushing ones coming at you at any time. At times it may feel like playing Wheel of Fortune where one wedge can be great news and another bankruptcy. But if you are aware of these dates and milestones you can act rather than react.

Occasionally some headlines seem to come from left field.

NY Times SEPT. 2, 2009

Unfortunately, this is not uncommon. We like to sue people, and even better, we like to sue big companies. Incidentally we do dumb things and big companies, amazing as it sounds, do even dumber things.

In this case the government sued Pfizer for fraud and hence the hefty criminal fine. Things of their own doing. Other times legal cases may not entirely be due to what the company has done but stemming from adverse effects from a drug. This adds to more events an investor has to be aware of while investing in the Bio-pharmaceutical Industry.

There are some rookie mistakes to be expected but with experience cooler heads do prevail. One area I see people over reacting is when data comes out and at first sight its not clear what it all means. Investors can jump the gun, sell and ask questions later. For instance the FDA can issue a CRL or Complete Response Letter when to a company that submitted a new drug for approval. A CRL can be for a variety of reasons, minor like information needed on labeling or major, like some issue with clinical trials. A CRL is not a scarlet letter. Details matter.

If you bought the right company and at the right time you could savor a major win in this sector. It may be a risky sector but if you are aware of the events, the risks are quantifiable. The key is what kind of information, what it means and where to get it from.

For a major past winner (with still more potential) you can check out a post I did on Alexion, Apple and their stock performances.

Disclaimer: This post is meant for informational purposes and should not be viewed as an endorsement to trade in any stocks mentioned. Before investing in the stock market seek the counsel of certified professionals, do extensive research and remember investing in the stock market is risky.

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